(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Company Settles SEC Action Alleging Inadequate Internal Controls

As part of settling an SEC enforcement action alleging that it had inadequate internal controls, a company agreed to require internal audit to prepare a confidential business report at the close of the next three fiscal years for the audit committee, with copies sent to the SEC staff and the company's independent auditors. The report must include a description of the scope of the audit plan and confirmation that the plan was carried out. The report must also contain an overview of the significant control weaknesses identified that require improvement, as well as a review of the steps taken to improve the system of internal controls. In settling the federal court action, the company neither admitted nor denied the SEC's allegations.

The company also undertook to engage an outside firm with appropriate qualifications and expertise to perform the internal audit function, or if it should decide to staff the internal audit with its own employees, assist a designated employee director of internal audit in performing certain internal audit procedures. The settlement additionally requires the internal audit function to report directly to the company's audit committee.

¨ Accounting and Auditing Enforcement Release No. 1944 will be published in a forthcoming REPORT.